Strategic interaction Flashcards
What does strategic behaviour involve?
Primarily focusing on how people try to predict what others might do
What’s the “beauty contest” example?
- People pick “most beautiful face”
- Whoever votes for most popular wins a prize
- Leads to people picking what they think others will pick
We say strategy i dominates strategy j if:
the person always gets a higher payoff from i than j
What is a Nash equilibrium?
List of strategies for each person such that no one could change their strategy and do better
What are the two levels of strategic interaction regarding teams?
- Interaction within the team
- Interaction between the team
What are some examples of auctions?
- Paintings at Sothesbys
- Livestock at a cattle market
- Cars/houses
- Goods on ebay
What is an english auction?
Starts at a lower price and gets incrementally higher
What is a Dutch auction?
Bidding starts at high price and incrementally lowers until someone is willing to buy at that price
What is a first price sealed bid auction?
Potential bidders submit sealed bids simultaneously
What is a second price sealed-bid auction?
Same as first price, but highest bidder only pays as much as second highest offer
What is the revenue equivalence theorem?
The idea that all auction types will result in the same revenue from the sale, if bidders behave optimally
What is shading a bd?
Bidding below the amount you value an item
What is the winner’s curse?
When someone is too optimistic about the value of a hidden-value item, so they bid more than the item is actually worth
What is a coordination game?
When people want to coordinate their strategies to a mutual benefit
What happens in a weakest link/minimum effort game?
A group of people must decide how much effort to put into a group task
Who sets the UK interest rate?
The Bank of England’s Monetary Policy Committee
Who sets the US interest rate?
Federal open market committee
What is limit pricing?
When the incumbent monopolist pre-commits to low prices and thereby makes the market look unattractive to new entrants
The success of limit pricing depends on:
How easily the monopolist can make the market look unattractive to the incumbent
The lack of information on cost turns the limit pricing game into a:
Signalling game
What’s the consequence of not enough firms entering the market?
Firms in the market make large profits
What’s the consequence of not enough firms entering the market?
Some are going to make losses
What is quantity leadership under Cournot?
Monopolist and incumbent choose quantity without observing the other firm
What is quantity leadership under stackelberg?
Leader firm chooses quantity, firms observe and choose their quantity
